CDW's Edwardson On VARs, HP and Dell

CRN Editor-in-Chief Michael Vizard and Deputy News Editor Jeff O'Heir recently met with CDW CEO John Edwardson to discuss the company's sales strategies and where it fits into the channel.

CRN: Our readers are getting confused. They don't know if they compete against you or they should partner with you. How do you see the synergies between CDW and the channel?

Edwardson: In the beginning, we were doing, what most of the people you write for do today. [Michael Krasny, CDW's founder] was doing installations; he was doing software design work and driving computers out to people's businesses. Our model evolved over the years to a model where we perform services on our premises. For the most part we compete with everybody: the very little guys and all the big guys like us and now against the direct activities of the manufacturers.

When I talk with our sales people the name I hear most frequently is Dell. I hear HP a lot. But the competitor I hear of most frequently is the local VAR. Far and away that's the biggest competitor. I was having breakfast with one of our sales VPs and I said we're getting in the press because people are accusing us of undercutting them on price. He literally started laughing. He said I lose business everyday to local VARs on price.

In many respects we have all the resources and activities, other than onsite installation, that all the VARs do. We design systems only to have them underbid by local VARs. We lose business to local vars.

CRN: VARs complain that they do all the project spec work up front, get the deal going, it goes up the corporate ladder and then purchasing says it has to get bid the job out against CDW. CDW then gets volume pricing out of manufacturers and distributors [and has a better chance of winning the bid.]

Edwardson: Certainly our volume pricing is not better than HPs own internal volume pricing. It isn't any better than Insight's or [PC] Connection's or [PC] Mall's or any of the bigger VARs. But we're also beginning to charge for system design work because we've lost enough to other people so that [CDW's sales] team are saying if we're going to do the work we're either going to have to have you pay for the work or we're going to have to talk to you about it over the phone, but we're not going to send you a written description of everything you need because we don't want you to take the design work we've done and let other people do it.

We have the same problem [as local VARs.] What we've basically morphed into is a big version of the local VAR, without the local service. We do the design work, we do the counseling work and we now have people in 32 states in the field. We're looking, in a lot of respects, a lot more like a Pomeroy [IT Solutions] or a Forsythe [Solutions Group], except we're not in the big boxes, like the HP Superdomes or the IBM big blues. We're doing the bottom end of the AS 400, but nothing really sophisticated.

CRN: There's a class of VARs out there that are taking a practical approach [to their business models.] Rather than fight these guys, can you leverage them and have them provide services around the product?

Edwardson: We have evolved to knowing what vale we can add to the customer and where it can be. My sense is what's happening in the market is that 80,000 other [VARs] are looking at this and they're asking themselves the same question: where is the value that I'm going to add and how can I make profit doing it? For most of us who have gotten really big in the channel, we've gone in the product direction. I know we're incapable of having 20,000 service people driving 20,000 vans in a thousand dif communities. It's just not what we're good at.

CRN: The other issue when dealing with VARs is account control. They're paranoid about who's going to control the customer relationship.

Edwardson: We're all paranoid. When your biggest vendors become your biggest competitors, you're paranoid. That's what I think is not healthy about what's happening right now. I think their [large manufacturers] competitive issues aren't as much in sales and distribution as they are in manufacturing. That's where they're losing money.

CRN: With HP trying to go direct to counter Dell and relying heavily on direct marketers as the second tier of that model, doesn't that create this kind of trickle down effect back to VARs where they all have to look at their business models?

Edwardson: What's very interesting to me is the unhappiness with HP. I'm hearing more and more, not from the biggest companies in channel, but from the medium size companies in the channel, those doing 300-400 million in revenue. HP is just banging into them. We all know where Dell stands. It's a little more confusing to know where HP stands.

HP didn't begin to get into this [increased direct efforts in the mid-market] much until the merger with Compaq. There were many more believers of competing directly on the Compaq side of the merger than on the HP side. Clearly that's not the case throughout all HP. On their printer side 95 percent to 96 percent of that revenue goes through the channel. I think we can compete very well against HP on everything but price.

CRN: What are your conversations like with HP execs when you question them on their direct efforts?

Edwardson: They say they believe there are customers that will naturally gravitate to them, the larger customers. I counter, "What's wrong with the Hard Deck?" The world was simple when there was a Hard Deck. I think they are... making a mistake by not having a Hard Deck. If they want the channel working on their behalf, the channel has to know where they are going to compete and where they are not going to. HP cannot be as effective in the midmarket as the smaller companies. They don't have the sale or the service levels to do it. If they want to focus on the biggest companies in America, that's fine, then we all know where we play. The next four to five years are going to be very interesting to see how all this evolves.

When I'm visiting HP and IBM, I'm banging on them for clarity on what they're going to do. I tell them you've got 80,000 [VAR] companies working on your behalf. That's a bigger army than you can ever amass on your own so why not use that army to combat the evil people in Austin, Texas. Because I talk to them on behalf of CDW, it ends up being a voice for the channel.

CRN: People are beginning to lump Dell, HP and by extension you guys into the same bucket. Maybe they're not doing the analysis to see that CDW is slightly different. Instead they are saying Ingram Micro and Tech Data enable CDW to sell direct at a lower price than solution providers can sell at.

Edwardson: We use Ingram and Tech differently than the local VAR uses them. We usually get seven to eight trailer loads of product every day from both from Ingram and Tech, so we're getting a lot of product. We still purchase nearly 50 percent of what we sell through them. They're very, very important to us. What we use them for mostly is speed of delivery. The local VAR uses them for all those other services we don't use.